New measure to help individuals manage unsecured debts

Singapore, The Monetary Authority of Singapore (MAS) announced today a new measure to help borrowers avoid accumulating excessive unsecured debts. The Credit Limit Management Measure will cap the additional unsecured credit that a financial institution (FI) may extend to a borrower whose outstanding unsecured debts exceed six times his monthly income. This measure will take effect on 1 January 2018 and complements the existing industry-wide borrowing limit.

2 For borrowers with significant outstanding unsecured debts, the Credit Limit Management Measure aims to pre-emptively cap their total credit limit1 before they are affected by the industry-wide borrowing limit. Under the new measure, where an individual's outstanding unsecured debts2 exceeds six times their monthly income, an FI will not be allowed to grant:

i) any increase in credit limit; or

ii) any new unsecured credit facilities

that will cause the individual's total credit limit to exceed 12 times their monthly income. Borrowers can continue to draw on their existing unutilised unsecured credit facilities (refer to Annex for pictorial summary). The new measure will not require borrowers to reduce the credit limit of their existing credit facilities.

3 The overall unsecured credit situation in Singapore remains healthy but some borrowers continue to increase their indebtedness. The vast majority of unsecured borrowers are borrowing within prudent limits. Since the introduction of the industry-wide borrowing limit in June 2015, the number of highly indebted borrowers � those with outstanding unsecured debts exceeding their annual income � has come down by about 21,000, from 5 per cent to below 4 per cent of total unsecured borrowers. However, since January 2017, an average of about 4,000 borrowers per month have increased their unsecured debts to above 12 times their monthly income compared to the previous month3.

4 The introduction of the Credit Limit Management Measure follows a public consultation conducted in September 2016. MAS has taken the public feedback into consideration and revised the proposals where appropriate. In particular, MAS has lowered the threshold of the Credit Limit Management Measure from 12 times to 6 times of an individual's monthly income to prevent debt creep earlier. Details are set out in the responses to feedback received on the consultation paper.

5 Ms Loo Siew Yee, MAS Assistant Managing Director (Policy, Risk & Surveillance), said: We are making steady progress in helping borrowers manage their unsecured debts. The industry-wide borrowing limit has reduced the overall number of highly indebted borrowers. Several assistance schemes and repayment plans, such as the Debt Consolidation Plan launched earlier this year by The Association of Banks in Singapore, are available to help these borrowers work down their existing debts. The measure announced today is pre-emptive in nature � it will help borrowers manage their unsecured debts early and avoid becoming highly indebted.

1This refers to a borrower's credit limits for all unsecured credit facilities (including credit cards, personal loans and overdrafts) summed up across all FIs.

2The new measure applies to interest-bearing balances of unsecured credit facilities such as credit cards, personal loans, and overdrafts. It does not apply to secured credit facilities such as housing loans and motor vehicle loans, as well as loans for medical, education or business purposes.

3This represents new highly indebted borrowers. On average, a larger number of borrowers reduce their unsecured debts to below 12 times their monthly income, leading to the overall net decrease in the number of borrowers.